Suppose a small economy produces only HD TV sets. In year 1, 100,000 sets are produce and sold at a price of $1,200 each. In year 2, 100,000 sets are produced and sold at a price of $1,000 each. As a result:
A) Nominal GDP stays constant, while real GDP decreases
B) Nominal GDP decreases, while real GDP stays constant
C) Nominal GDP and real GDP both decrease
D) Nominal GDP decreases, and real GDP decreases even more

Question

Quizplus · Accepted Answer

Nominal GDP decreases because the price per TV set has decreased from $1,200 to $1,000, while the quantity remains the same. Real GDP stays constant because the quantity of goods produced (100,000 sets) remains unchanged, assuming year 1 is the base year.

Suppose a Small Economy Produces Only HD TV Sets